Many employers provide employee benefits, in the form of various benefits, plans and programs to their employees as part of their total compensation packages. These benefits may include employer administered or sponsored retirement plans, such as 401(k) plans, profit sharing programs and other similar plans.
The U.S. retirement system today suffers from a significant lack of automation in the millions of largely manual, non-standardized transactions that occur in the transfer of consumer retirement accounts between former and current employer plans and between former employer plans and individual retirement accounts. In one particularly egregious example of the retirement system's inefficiencies, the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”) amended section 401(a)(31) of the Internal Revenue Code of 1986 (“the Code”) to require employers to cash out benefits greater than $1,000 and up to $5,000 and to transfer these amounts to an individual retirement account/plan (“IRA) within the meaning of section 7701(a)(31) of the Code. When EGTRRA amended section 401(a)(31) of the Code, it also amended section 404(c) of ERISA to establish a “safe harbor” which generally relieves retirement plan fiduciaries of responsibility if the automatic transfer is made in a manner consistent with the final regulations enacted by the Department of Labor (DOL) as published in regulation 2550.404a-2 of Title 29 (“the Regulation”). The safe harbor provisions require plan sponsors to enter into a written agreement with an IRA provider who will receive automatic rollover distributions (“AROs”). The written agreement must limit the form of investments and must describe the investment goals and the fees charged to the IRA and allocation of those fees to the terminated plan participant or to the plan sponsor.
The EGTRRA has contributed to the rapid growth of abandoned/orphaned accounts in the retirement system, including both Safe Harbor IRAs and abandoned/orphaned 401(k) accounts. The numbers are projected to increase each year, growing from approximately 7.5 million in 1999 to approximately 42 million in 2011 and 56 million in 2015. In many instances, a consumer will have multiple ‘abandoned/orphaned’ retirement accounts scattered across multiple retirement plan providers, record-keepers, or IRA providers. The result is a highly inefficient retirement savings process for the consumer, significant administrative burdens for employer-sponsored retirement plans, an unnecessary large number of small retirement accounts administered by plan providers, and substantial “leakage” of retirement savings caused by people cashing out of low-balance retirement accounts instead of rolling those accounts into existing accounts because of the arcane, complex roll-over procedures currently in place. There are currently no automated processes in place to aid a consumer in consolidating their accounts, again, resulting in a “Hobson's Choice” between undertaking a complex and time-consuming process or simply abandoning, ignoring or cashing out of the retirement account.
The market for Mandatory Distributions/Safe Harbor IRAs (SHIRAs) is currently scattered and fractured; there is no dominant provider. Existing providers include: most of the larger defined contribution/401(k) providers, who are in the business primarily as an accommodation to their employer/plan sponsor clients where Mandatory Distributions may or may not be a profit center; and an array of independent but small scale providers, for which Mandatory Distributions are a profit center.
Thus, there exists a long-felt, unsolved need in the retirement industry for an automated roll-in system to provide an organized, orderly and economically-efficient movement of individuals' accounts between their former employer-sponsored retirement plans or IRAs and their new or existing employer's retirement plan(s).
A preferred Proactive, Auto Portability Individual Retirement Account System/Method (“PAPIRAS”) includes, but is not limited to, an Automated Roll-In System/Method (“ARIS”) of the present disclosure and comprises a “better mousetrap,” employing a proprietary suite of component technologies and processes to achieve an unparalleled level of automation—and scalability—to the heretofore largely ignored, manual, expensive and time-consuming transaction of consolidation or rolling abandoned/orphaned retirement accounts or IRAs into an employee's retirement account under his/her current employer's qualified retirement plan. A preferred PAPIRAS of the present disclosure will routinely, securely, and automatically source, locate and/or consolidate individual retirement accounts for the ultimate benefit of the consumer, while simultaneously solving the employer-sponsored plans' administrative problems.
A preferred PAPIRAS of the present disclosure will preferably be designed to achieve critical mass by targeting for membership entities that control significant volumes of Defined Contribution retirement accounts such as large plan providers. Member record-keepers will be attracted to a preferred PAPIRAS of the present disclosure because its core value propositions are appealing from both a public policy and business perspective. Such public policy benefits include: a reduction in cash outs of retirement accounts by individuals by creating an automatic new ‘path of least resistance’ for transitioning employees' Mandatory Distributions. ‘Do well by doing good’ as American Workers' retirement account balances grow by account aggregation and “Staying Invested” so that member record-keeper firms' business will benefit due to relief from the aggravation, risk and explicit costs of providing a perpetual stream of low margin, Safe Harbor retirement account services. Assets under management (AUM) will not be significantly reduced but are likely to increase: Safe Harbor accounts will remain invested in member record-keepers' products even while the expense for administration, servicing and transfer are borne, in-whole or in-part, by PAPIRAS. Over time, the largest member record-keepers may expect their AUM to grow as an increasing number of accounts are re-cycled from former employers into existing 401(k) accounts. Member record-keepers margins will improve as low margin Safe Harbor accounts are reinvested in higher margin 401(k) investment products; member record-keepers that also provide Safe Harbor eligible investment products will receive new assets under investment from the mandatory distributions from member record-keepers that do not provide such products. A preferred PAPIRAS of the present disclosure will focus on recycling small account balances into active 401(k) accounts which will be viewed as beneficial Public Policy. It is anticipated that there will be significant interest—and support—for PAPIRAS from the several regulatory bodies that oversee the retirement industry given a mission of PAPIRAS will be to “Keep American Workers Invested in Retirement” as they transition from one employer plan to the next throughout their working lives—or into retirement. A preferred PAPIRAS of the present disclosure will also be useful to re-unite millions of American workers with their ‘orphaned’ retirement savings accounts by automatically “recycling” or consolidating them into their new employer's retirement plan.